Ron Johnson and Michael Francis J.C. Penney, Apple and TargetSuddenly the cool kids of retail are running the show at J.C. Penney (JCP).

Two stewards of Target's (TGT) groundbreaking "mass-tige" (mass-prestige) formula are stepping into the president and CEO spots at the $17.8 billion chain, suggesting bold changes could be coming for the middle-of-the-road department store, insiders say.

Last week, J.C. Penney plucked Michael Francis (right) from Target to serve as president. The position has been vacant since 2009, when Ken Hicks left to become CEO of Footlocker (FL).

Francis was executive vice president and chief marketing officer of the discounter, where he has spent most of his 25-year retail career. He's the man behind Target's cheeky advertising and marketing campaigns, and most recently, the blockbuster Missoni fashion collection.

Francis will report directly to incoming CEO Ron Johnson (left), who assumes the top spot on Nov. 1.

While Johnson joins J.C. Penney from Apple (AAPL), where he headed up its highly successful retail business, it's his previous 15-year run as vice president of merchandising for Target that will be most relevant to his new role, analysts say.

In the late 1990s, Johnson helped usher in what has become Target's calling card: Exclusive collections from high-end designers and high-brow names -- offerings unheard of at the time for a discount retailer.

The string of partnerships started with a home collection from architect Michael Graves, and has gone on to include lines from Isaac Mizrahi, Jean Paul Gaultier, Liberty of London, Missoni and Jason Wu.

While Johnson helped orchestrate these designer lines, "Francis' marketing made the brands cool -- and sold them," says David Zrike, president of The Zrike Company, a tabletop and giftware company that has supplied both Target and J.C. Penney. "His marketing gave life to the store."

A Store in Need of a Makeover

In recent years, J.C. Penney has worked to shake off its stodgy image, inking deals for clothing lines such as MNG from MANGO, Nicole Miller and Charlotte Ronson, and adding Sephora beauty shops to many stores.

But these collections haven't been game-changers, and they haven't done enough, says Craig Johnson, president of retail consultancy Customer Growth Partners. "What is J.C. Penney's 'blow-up brand'?" he asks.

Also a key question: Is the "Tar-Zhay" treatment what Penney's current customers want for their store? Shoppers interviewed at its Manhattan location -- admittedly, a self-selecting group -- worried the former Target executives will cut quality and jack up prices.

While shopping for a holiday dress, Y. Negron, 54, said she liked the quality, modern styling and fair prices -- "they're not trying to scam you" -- of the clothes she finds at J.C. Penney, and that she always finds her size, 16. By contrast, "Target is overpriced," says the city employee.

"If you're going to charge me more, give me better quality," Negron says. With Target executives now at the helm of J.C. Penney, "I'm concerned the prices are going to go up."

Some shoppers said J.C. Penney beats Target on fashionable clothing that's also practical.

Linel Ortiz, 25, shops J.C. Penney for "inexpensive, better-quality" work clothes and everyday pieces that she can dress up.

While she buys items for the home at Target, its clothing styles are "flimsy" and too young, says the marketing intern from Queens. Although she'll check out Target's designer lines because she knows they're in stores for a limited time, she often finds them "too party-ish," she says.

"I hope they don't change and [make J.C. Penney's clothing] junior-ish."

Natasha Jarvis, 28, described J.C Penney's fashion aesthetic as "laid-back casual," which fits her "comfortable but fashionable" style. "I really like the quality of the clothes," she says. "You can mix and match them up."

Jarvis shops Target for food, but its apparel leaves her cold. The teacher's assistant was on the hunt for a print Liz Claiborne bag she spotted back in late summer at Penney's. "I really like the bags. I don't find bags I like at Target," Jarvis says. As for the discounter's designer partnerships, she was unaware of their existence.

No Big Changes Planned ...


The recent management changes won't impact J.C. Penney's core business model, the company says.

"J.C. Penney has a legacy of delivering great style and high-quality merchandise at compelling prices, and customers can expect this legacy to continue," Rebecca Winter, a company spokeswoman, tells DailyFinance. "We have not announced any plans for additional merchandise changes."

Meanwhile, Target defended the quality of its merchandise.

"I can tell you that Target is committed to offering our guests incredible value, which includes quality, well-designed apparel at affordable prices -- and, our guests give us high marks. In fact, Target's overall customer satisfaction leads the industry," Joshua Thomas, a Target spokesman, tells DailyFinance.

... But Innovation Must Be Coming

Still, when Johnson and Francis take over J.C. Penney, changes will go well beyond peppering the mix with trendier lines, Customer Growth Partners' Craig Johnson says. "These guys are innovators."

Indeed, when J.C. Penney announced Ron Johnson's appointment in June, the incoming CEO promised to "re-imagine" the department store format, what he called "the single greatest opportunity in American retailing."

The new executive duo could do something radical, like adding groceries, Johnson says, noting that Francis was part of the team behind Target's PFresh concept, which brought an expanded food section to the stores.

The Marketing Factor

J.C. Penney's merchandise would benefit from some jazzing up, but the retailer also needs to tell consumers a more compelling story, says Jeff Klinefelter, managing director for Piper Jaffray. And it needs to act soon: In addition to being a perennial under-performer in the last few years, the retailer is not growing market share. "What people are worried about with J.C. Penney is that it's an old, tired brand, their core customer is aging, and spending less money on discretionary products."

J.C. Penney's sales have trailed Target's in 2011. For the quarter that ended July 30, sales slipped 0.8% at the department store, while the discounter posted a 5.1% gain. For the previous quarter, J.C. Penney's sales inched up 0.4%, compared to Target's 2.8% increase.

Every Brand Needs a Story


Target is nothing if not a compelling storyteller, and it's Francis who has been spinning its quirky and buzz-generating tale, using clever TV spots and splashy pop-up stores to whip up excitement for new designer lines, such as the Missoni collection. That launched last month during New York Fashion Week, and was such a sales hit that it crashed Target's web site and sold out from store shelves within hours.

Francis' influence has also extended to visual merchandising in the stores, with product displays that romance the merchandise. "It's really linking that store experience [to the trendy] merchandise that's given them that run of success they've had in the last decade," Klinefelter says. Shoppers can expect these tactics to be adapted for J.C. Penney, he says.

Leave Home Alone?

As for reworking J.C. Penney's home business, Johnson and Francis might want to tread lightly. "Home has been an under-performing category at Target for several years," Klinefelter says.

Although Target's designer fashion partnerships have been one secret to its success -- and set it apart from behemoth rival Walmart (WMT) -- they haven't always translated to sales in the home department, says Jeff Siegel, CEO of housewares supplier Lifetime Brands, which counts J.C. Penney and Target among its retail accounts.

In general, "home does better with [national] brands," rather than more esoteric names, Siegel says.

When it comes to home goods, price and functionality drive purchases, "and it could be true that shoppers don't find a lot of relevance in designer products," Klinefelter says.





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55 Comments

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Darren

when I go to either store and someone in sales tries to speak to me in spanish I just turn around and leave, I do live in America by the way. You call me a rascist like it's a bad thing??? I speak english and my great, great, great grandparents were born here and I believe fought in the American spanish war.....I'm ready to fight, it's time we took back our stores and our country......boycott mexico and mexicans.

October 13 2011 at 5:32 PM Report abuse +1 rate up rate down Reply
David

Please don't put
3 pianos shrink wrapped together, like Costco does. One is enough. A dozen alarm clocks? No. I once saw a "Smart Car" displayed at the exit door at Costco. As if someone is going to have an impulse and toss a Smart Car in their cart and take it home. Honey!

October 13 2011 at 2:07 PM Report abuse rate up rate down Reply
mdbcg

I want to know what quality in clothing these people in Manhattan are talking about? Maybe that store is different from every Penney's I have been in recently, but the clothes for women look cheap, unlined dresses, ugly patterns and usually cheap looking shoes. Men's clothing and home goods are about all Penney's has had going for it for a while before they added in Sephora. In my opinion, clothes looking like some of what you might find at Target would be a step up. At least their dresses are lined! I don't usually buy clothing at Target, didn't care for the 60's/70's revival of Missoni, BUT I NEVER think of Penneys as a place to shop for my own clothing. I mean, they took the Liz Claiborne line, made it an exclusive vehicle for Penneys after the wonderful Spring/Summer line spearheaded by Isaac Mizrahi and turned it into a cheap looking, devoid of any creativity or quality line!! After you go into a store to discover how unappealing their selection is to your taste enough times, why go back???

Not surprising, most of you haven't even given these two men a chance before you have made up your mind!!

October 13 2011 at 10:24 AM Report abuse +1 rate up rate down Reply
tortoise45

As long as they do not resort to low quality clothing...so many of our department stores have closed in our area...I am tired of wearing Walmart crap...so have been buying off the internet...some good some not so good...I agree with linday1 it is nice to have helpful friendly people to help me...Instead of tryint to count all the piercing in the girls or guys faces...at target....at walmart they are too busy visiting with other employees or hardly speak english...one walmart they only play mexican music...am I racist...I guess maybe...but I live in America and I want to hear music that I understand....and please no groceries in JC Penneys....Maybe Sears should head that way...

October 13 2011 at 10:21 AM Report abuse +1 rate up rate down Reply
Nancy

I love JCPenney just the way it is; "if it isn't broke, don't fix it". Their clothing caters to ALL ages & at a reasonable price, please don't change!!

October 13 2011 at 10:12 AM Report abuse +1 rate up rate down Reply
linday1

Please! No groceries at JCP! It's a great store that may need some redesign of the layout, but the merchandise is appealing and current and the prices are in line with what the market will bear at this time. I never shopped Target for clothes; they just don't have the variety I look for. Also, I find the employees at JCP to be very helpful and friendly; how refreshing!

October 13 2011 at 10:06 AM Report abuse rate up rate down Reply
anngreer

I wear larger sizes---no point in even going into Target, but Penney's will have a good selection.

October 13 2011 at 9:12 AM Report abuse +1 rate up rate down Reply
jerald3739

Poor JC Penney. All these two new hot shots will do is try and turn the company into another Target. Penney is an icon in American retailing and previous top management worked to keep it that way. It was the poor mans high class department store. Now come the turks to change this image again catering to shoppers that lack any class at all and certainly don't have a loyalty bone in their body.

October 13 2011 at 8:32 AM Report abuse +4 rate up rate down Reply
bumper870

I thank J C Penny's has made a mistake. look at Target which is not customer friendly not enough carts. limited electronics , etc J c Penny has been making it without a CEO think at the money they have saved. Why don't they hire from with in. J C Penny has it own business Model which has allowed it to stay open. Why hire some one that knows nothing about their company. When a person leaves another company is for 2 reasons
1 money
2 leaving because they are uncomfortable at their former company.
care nothing about new company.
What undercover boss most CEO have no ideal how or what the company is about.

October 13 2011 at 7:05 AM Report abuse +1 rate up rate down Reply
eastport111

I think Penny's is fine just the way it is. I like their clothes and if they change and start selling ugly clothes like Target does now I just won't shop there anymore.

October 13 2011 at 4:36 AM Report abuse +3 rate up rate down Reply